http://s3.amazonaws.com/advrider/peepwall.gif.......but I did say "a few." Sorry :(

It's good info.... and it's something that I actually try to look at when selecting a particular stock over another in the same sector. I want to see that increasing dividend payout over time.

My reasoning is far simpler though... and isn't mathematical or hard to understand in THEORY..... I want the dividend to try to keep up with INFLATION. Simple as that.

That's why I'll repeatedly try to beat into you guys heads... real simple "Investing 102":

Good name that you know and understand their business

Good chart that marches higher over a long time frame

Good dividend

Reinvest the dividend (if you're not already retired)

Dividends increasing over a long period of time

Diversify until you have at least 15 names

The old KISS principal. :lol:

Not to go completely off topic but what do some of you recommend when it comes to saving for your children? What types of accounts are some of you using?

Totally agree and understand Greg. We'll keep it simple here because you're right in that choosing a good stock matters more than doing nothing. The debate over which of the good ones is best can come at another time.

I'm going to jump in here (as usual?) because we just have been having this discussion at our house (re-doing wills and estate planning before year end)...

So just some quicky thoughts - and things our attorneys and trust managers put in our heads to think about.

You can "GIFT" to your children (anyone actually) $13,000 per.... so Husband and wife - can EACH gift 13K to a child (or anyone) per year. So that's 26K per couple to an individual. TAX FREE - No paperwork no nothing....

It is "best" to gift them assets that have "appreciated".... so --- you bought McDonalds 10 years ago - it's up 300%.... rather than you selling some - and giving the "money" as a gift -- it's best to just transfer "13K" worth of the asset to them. You will not have the long term capital tax (15%) AND the receiver gets what is called the "stepped up cost basis" -- so their "gain" if any is from the date you transferred the asset. So let's say you bought at $100 - it's not worth $300.... the "kid" gets the stock and their "cost" for tax purposes is the $300. They can sell it the next day and have no tax liability... (if it stayed at $300). So you escaped taxes on your gain - and they have no gain so pay no taxes. Sweet!

The other "discussion" we had about "kiddies" is that you can't help THEM if you're not in a position to help yourself. So you need to save and get financially "fit" yourself FIRST.... Which - frankly - was good advice from the trustees. In other words it's impossible to help someone else unless you're in good shape yourself. A guy that can't swim can't help someone that is drowning.

Many people PREFER forced savings accounts -- 529's (educational trust accounts) etc. Or you can set up a ROTH IRA (but that is for THEIR RETIREMENT) -- and remember this.... at 21 - whatever you "gave" them in various accounts - is THEIRS. So that works great if you have great kids -- not so great if they've fallen prey to a bad spouse or "you name it" bad things.

I had accounts in both kids names with us as joint owners - put assets in them for years - then drained 'em for college expenses - took the last of the dough out a month before they turned 21 and just "recaptured it" back into our accounts. I get stuck with paying the bills one way or the other... and this way I didn't wake up one day to find out they cashed out and went to Vegas with their buddies.... and ended up in a movie "Hangover 3". :D

Gwen and I will "gift" them up to the max as we see fit... and as they need for babies - house - a busted car etc. But we set ourselves up FIRST so we can now do that and it's no biggie.

I'll "expose" myself a bit more here - just for general educational interest... We are in a position that we are way over the amounts you can put in trusts in the event one of us passes and or both pass etc... so we "can/need" to put assets into trusts and get them out of our estate "IF" we want to escape so large "death taxes".... and we'd discussed putting house down payments or enough to buy a house outright in a trust for each kid. But we don't want "trust fund babies"... and these trusts bring with them extra costs etc and they get complicated if the kids want to sell and move for another job - and the "trust" owns the house and blah blah blah....

I'm all about keeping stuff SIMPLE and so I can understand it. I hate crap with RULES - because over time - the rules change or we violate the rule and get hit with penalties etc. Hate stuff like that! :lol:

That's what I've been trying to PREACH -- get started -- post it up if you feel like it - let's all discuss it -- rip it apart - or learn from it (MSFT?) etc. but get started is the KEY point.

WITH THAT IN MIND -- I'd love to see "you all" post up some names and the reasons you think they're a good candidate for ownership.... let's get it up to 10 names -- a basic "portfolio" if you will.... and see what that looks like??

Kind of a "on paper" investment club??

Greg, it's against my better judgement to counter you on this but without having the time to research it (just on a quick lunch) I believe this only applies if the gifter dies. Otherwise the original cost basis is retained.

Otherwise, 2 people each could buy a stock and then just gift their purchase to the other once it had appreciated and pay no taxes as long as the gift was below the current annual limit. I wish they weren't, but the IRS is smarter than that.

Since you have brought up McDonalds's more than once I think it's interesting to note that they are much more a real estate company than a burger company. They buy prime real estate to put their restaurants on and then lease it back to the franchisee on top of their 8% (I think) franchise fee. How many times have you seen a McD's move a few hundred feet down the road just to be on the corner?

Just wanted to say too Greg what a great thing you are doing sharing all this information with everyone. I looked at the times of some of your posts yesterday and good lord man, did you even take time away for Christmas? :thumbsup:

I will stand corrected that the RECEIVER uses the cost basis of the GIVER... and not the "stepped up" cost on the date of the transfer. So Erik is absolutely right about that. My mistake.

There are other stepped up cost basis transfers -- and I confused those when posting. We've been in these discussions for weeks now - and there's a lot to take in.

Let's not get off on an estate planning tangent in "investing 102" -- I was just trying to respond to the OP question about how to help your kids out.

Thanks for catching that Erik!!

We do Xmas on Xmas eve.... Xmas day is for just hanging.... and then I had 12 people (two other families - not related) for dinner (mid afternoon) and then kicked them out by 9! They were hammered enough by then... :lol:

Since I don't drink -- I'm an early riser... but do "tire" of the drunks early... At my house - we insist on designated drivers... so usually one of the kids gets stuck driving their parents home. The party started with eggnogs... then I cracked a 3.0L bottle of Stags Leap SLV... then another two bottles of wine! I'm so glad my head wasn't "soggy" when Jawarren showed up to work out this morning!!!

So Greg, all my money is tied up in 401 retirement accounts, but I have after tax money built up as well. My question is if I take some of this after tax money and open a Quiken account how will I know how much taxes I owe each year? Will Quiken send me a form or will I be stuck with figuring it out on my own? I appreciate all of the info.

Let's get this discussion going with a few stocks I am in. I included the ticker/name/industry/forward PE and dividend yield. Take a look at some of the stocks below, do your research and be comfortable with the company/charts before you buy. As Greg said, as soon as you press the buy button, someone out there knows and will drive the stock down.

VOD- Vodaphone primary owner of Verizon- (telecom)- 10.4 PE, 5.3% yield. I am looking for international smartphone growth exposure. Downside is I can't reinvest dividends in the form of stock. Alternative is VZ (Verizon)

BBEP- This is an MLP (oil/gas pipelines) with a forward pe of 7.7 and current yield of 9.1%. An alternative that i have owned for years is KMP, but you might wait for a little pullback.

F- Ford (automotive)- 5.8 PE, ~2% yield (kinda weak yield, so you may want to look at GE)

COP- Conocophilips (oil/gas)- ~8.5 PE with a 3.6% yield

LLY- Eli Lilly- (biotech)- 9.6 PE with a 4.7% yield
MRK- Merck- (biotech)- 10 PE with a 4.4% yield

PM- Phillip Morris (cigs)- 16.2 PE with a 3.9% yield (alternate is Altria ticker MO)

KFT- Kraft (food) 16.6PE with a 3% yield.

So with the above, stocks you are covering people that use cell phones, drive cars, heat their house, smoke cigs, have a prescription and eat.

I didn't know that Quiken was in the brokerage business -- :D So I'm going to assume this is a typo and you meant if you opened a discount brokerage account -- and used Quiken to do your tax accounting??

All brokerages will send you tax reporting information - Schwab breaks it down and sends me every trade - long term vs short term gains - they show wash sales info - dividends qualified or non qualified etc. I hand that paperwork to my accountant and he handles it for me. I get this type of breakdown from every brokerage I'm in so they all do it.

For those of you in IRA's and that type of tax deferred accounts - you don't have anything to report (yet)... because all your gains etc are "deferred" until you withdraw. And if you have a ROTH IRA - there is no tax ever since these are funded with after tax dollars (these are the best plans ever IMHO).

Other than the stocks you have identified in prior posts as good candidates, I have three that I would like your thought on.

United Technologies (UTX)
10 year price increase 135% (good chart); Dividend increased 291% over last ten years, and good EPS growth rate. Dividend rate 2.65%

Lockhead Martin (LMT)
Like it for the same reasons as UTX, but has even larger increases in price, dividend growth and EPS growth than UTX. Dividend Rate higher than many of the stocks that were discussed at 4.95%. However, this company relies heavily on government contracts. Does that make it too risky?

Travelers Group (TRV)
Insurance play; Has had less of a price increase and dividend increase than either UTX or LMT. Dividend rate 2.77%.

That is a great looking group of stocks! I like the diversity - the yields - and they are mostly names you know and can describe their businesses.

The one EXCEPTION IMHO IS:

BBEP -- BreitBurn Energy Partners is what's called an MLP - that is a Master Limited Partnership...

When you compare charts of this - against KMP (Kinder Morgan Partners) it will make you want to throw up a little. BBEP has been DOWN 50% (vs KMP UP 123%) and then back up to "even" and for awhile it suspended it's dividend. And when it resumed it's dividend, it did so at a lower payout than the previous payout and is still paying out way lower than where it was (.44 now vs .52 in 2007). So for our INVESTING 102 -- this stock would be scary to own and has virtually no capital growth. Compared to XOM (EXXON) - CVX (Chevron) - KMP (Kinder Morgan Partners) just to pick 2 or 3 - with very nice charts - I'd prefer to own one of the steady eddies over this name. Just my opinion.


+++++++++++++++++


FORD (F) -- I like to sprinkle my account with some "pure growth" plays. Not many but they're fun to gamble on - and this is IF you already have some of these other good names paying you these nice fat dividends. I own Apple for that reason (bought at $85) and have owned Ford several times since the $2 mark - and just sold my Starbucks (SBUX) for a nice gain. So IMHO it's OKAY to play with this kind of stuff because it gets you interested and you can make (or loose) some money. I'd bet on FORD in the long run and sleep well at night doing it.

Woody ---


All good picks....

So here's just "my thoughts".... because you raised the question. UTX and LMT "rely" on government spending (defense spending) and we're trying to wind down Iraq and Afghanistan... and we're in a huge budget crisis... so I might loose a bit of sleep worrying about cuts here. So - remember that I am retired - I don't like to worry and go for a higher dividend payout (which really affects your compounding over time)... and so for me personally - I'd pick other names without the POTENTIAL for downside risk. BUT when you look at their charts -- they're good charts... so maybe that worry is all much ado about nothing. BUT - I always try to tell myself - if there is other stuff to buy that DOES NOT have that component - then why wouldn't I just buy the other stuff and leave these alone? It's only a game I play with myself - but it is the way I think. For INVESTING 102 - I'm trying to just type out some THOUGHTS a guy should ask himself.

TRAVELERS INSURANCE (TRV) - Nice chart - big name - I understand the business.... and would certainly feel comfortable owning this. It would be a "steady eddy" purchase for a portfolio - counter balance to something else I might buy that is a higher paying dividend but with more "risk" (to use one or two names for comparison sake -- JNK - HYG - NLY that all pay big dividends but have higher risk!)... so that's how/why I'd own this. I use Johnson and Johnson (JNJ) and Kraft (KFT) and AT&T (T) for this kind of "balance".

This has been a very good and interesting thread.

Greg,I know it feels good to help others, you da man.

Thanks Stuart! I love this stuff. Hot rodding, and investing, are something I'm passionate about. SO this thread is right up my alley - I'm on Lat G - discussing stuff that helps others whether it's car parts / welders / or investing. What's not to like? :lol:

Being useless and retired - my day starts out around 6AM with coffee - the computer on my lap - and CNBC on the tube... eventually I mosey on out to the shed...

EEEEEEEEEEEEEEHHHHHHHHHHHAAAAAAAA

That's fantastic. You have a great job..

WSSix Thanks for starting this thread and Greg for your extremely well spelled out info,excellent Job.
Also Thanks to the others who have contributed, I see this thread staying up towards the top! Keep it coming, Great stuff.
Thanks again all, two thumbs up :thumbsup: :thumbsup:

Ok because I believe this thread has provided a lot of good information I am willing to put myself out there and hear what some of you have to say. At this point in time this is what I have in my Rollover IRA (Fidelity):

Stocks
Apple (AAPL) P/E-14.75 Div/Yield-Not listed 10YR-+3788%
Caterpillar (CAT) P/E-14.03 Div/Yield-0.46/2.00 10YR-+256.89%
Disney (DIS) P/E-14.94 Div/Yield-0.60/1.60 10YR-+81.87%
Harley (HOG) P/E-20.28 Div/Yield-0.12/1.29 10YR--28.24%
Nike (NKE) P/E-20.94 Div/Yield-0.36/1.47 10YR-+248.03%

Mutual Funds
Fidelity Freedom Fund 2045 (FFFGX) 10YR--8.63%
Spartan Total Market Index Investor Class (FSTMX) 10YR-+23.73%
Vanguard Total International Stock Index Fund (VGTSX) 10YR-42.13%

The mutual funds I basically picked because of a book I was reading at the time. The stocks I picked because of popularity and brand name at the time. Again, all of this was done when I had absolutely zero knowledge about investing. I'm not happy with HOG and DIS performance and have begun rethinking holding onto those. The mutual funds are also something I'm contemplating selling off to buy into some of the stocks mentioned throughout this thread. I believe I have a high risk tolerance and can withstand the ups and downs of the market. And now that I've got a better understanding I'm wondering if I should hang onto what I have or switch it up. What do you all think?

VGTSX --- Sadly this has a horrible 5 year track record.... and hasn't even had a good track record since the lows of the US stock market (this fund invests in FOREIGN stocks). So it give you DIVERSITY but happens to be a not so hot fund. As you already know. If it was in my portfolio I'd sell it and move on and try to catch up with something (almost anything :unibrow: ) else.

FFFGX -- Again - sadly you already know the story here.... a 3rd stringer... and I personally have never understood a fund that invests in other funds. WTF kind of an investment is that. The fund manager buys other mutual funds that are run by the very same company that he works for. Each Mutual Fund has expenses - and this fund has it's own expenses - so everyone is making out - except you! The proof is in the pudding so to speak.

DIS -- Has a good chart - just increased it's cash dividend - and it's a name you know and isn't' "going anywhere" as in - it's here to stay. It gives you diversity. Steady. Pays a smallish dividend. Nothing wrong with it IHMO


HOG -- IMHO -- this "was" a good stock -- but is a trendy/fad stock. They only do one thing - Harleys.... that "fad" is just that. And the dividend is showing the result --- going DOWN not up. Dividends are directly related to EARNINGS and if you're not earning - you're not paying out. The guys I know that all rushed out to buy Harleys - have all sold 'em - they're 10 years older now than they were when they bought them for the "cool factor". The chart hasn't really recovered from the lows of 2008.

APPL -- I own this stock - and use it to park cash in. There is "RUMOR" (and that's all it is) that they may pay a special dividend due to all the cash on hand. Microsoft did that - in an effort to lift the stock... it failed. Apple is a growth story - but there is HUGE downside risk in this name. They fail to make a quarter - or they fail to have a great new product launch and you get taken to the woodshed before you can hit the sell button. At these prices ($400 a share) you could own a nice steady eddy that pays a nice dividend and have 10 times the amount of shares. So unless you have big money - I don't think this is a very good name for "modest money" accounts. It's priced for perfection (and so far has been perfect) and everyone is LOOKING FOR IT TO FAIL/HICCUP.... They're just holding their collective breaths. Do I think it's going to? I don't know - no crystal ball - I LOVE their products... I own the stock (1250 shares of it!) but I can afford the risk and I watch the market and am nimble at trading.... so I'm on the fence with this name.

CAT -- A good long term play - pays a smallish dividend.... but gives you good international exposure - it's an industrial...and I'd sleep well at night with this holding. It's dividend has increased over time - and it split back in 2005.


NKE -- What could anyone say bad about Nike. Great chart - increasing dividend - great products. Gives you "retail" for diversity.


FSTMX -- So here's why I'm not a lover of Mutual funds -- this fund is made up of great names - biggest holding APPLE (you already own apple!) and top of the line US stocks. BUT -- BIG BUTT -- you're not getting the dividends from those stocks! So you're growth is stuck in the mud and you're not getting the cash either. If you just bought what's in their top 10 holdings - and you got the dividend every quarter - you'd be better off. Having said that - there's nothing particularly wrong with it - but you could duplicate this fund on your own so why suffer their expense ratio? Just look at their top ten holdings - and go buy 'em - heck - you could skip every other name and still probably do better than they have?

I couldn't help think about the "big news" today from SEARS (DOWN 27% today).... that they're going to close a bunch of stores and that business sucks.... well DOH!

Here's the way I invest... it's the old "Jeff Lynch" school of investing (he ran his mutual fund - Magellan - this way).... He bought stocks of companies that he understood - and where he shopped etc.

SO ask yourself.... when was the last time you went to SEARS to buy anything? Tools? A refrigerator? A flat screen tv?

I can't remember the last time I was in one.... so it doesn't surprise me that they're not doing well. I'm an "every man" guy. Blue jeans and t shirts... and I shop at Home Depot - Lowes - Best Buy - and a real appliance store when I need something. SEARS never enters my mind.... so I sure as heck would not invest in it.

I'm just saying - that when you look around "your world" - where do you go - what do you eat - what gas do you buy - etc. Are the places clean and well kept? Are they busy? Do you get good service? Are you happy with the products and choices? If so - look up their chart and see how they're doing! Look up the competition and where you DO NOT shop - or don't like - or the places look crappy and see what their chart looks like.

It's fun... and educational. :woot:

Last night my wife and I went to Sears to look at ovens. I had a good idea of what we wanted and we found one and wanted to buy it. We could not get anyone to help us to just pay for it. We approached a sales person not next to a customer and he said he was busy and would be for half an hour. We ended up leaving although my wife did try to get someone in the tools area to help, again to no avail.

I would not suggest investing money in a company that makes it hard to give them money as a customer.

Great thread - thanks to everyone for the great discussion and informative insights. Investing is such a fundamental life skill that it really should be part of a basic high school education.

My two bits and my "ten":

1. The easiest way to consistently and (relatively painlessly) invest is through work. take advantage of your companies retirement plan if you can but resist the temptation to just sit on it - sell what you can, when you can to avoid finding yourself over exposed in the company that you already depend on.

2. Try not to too emotional about your investments... Easier said then done but you have to try. This applies to buying, holding, and selling.

3. Find the balance that you're comfortable with... Decide what you can handle risk/return wise and try to avoid investing with regrets. Like Greg has advocated, over the last year I've "abandoned" most stocks that don't pay a dividend in favor of a low risk, "guaranteed" return.

4. Keep in mind that your broker has his own agenda and it's in his best personal interest to sell you specific stocks.

As I mentioned earlier, I've gone the low(er) risk route and have focused on dividend paying stocks. Long story short.... For 3 and a half years i bought in to my old company's retirement savings plan - they matched my contribution up to 11% - at anywhere from around $7 to $11. When I left they were at around $9.50 and my retirement holdings were almost all in the companies stock. After I left the stock tanked, reaching a low of $4.50 before the company was bought by the Chinese for $10.08 - saving my bacon and forcing me to reevaluate my strategy

Now I hold (not in any order):

Enerplus (TSE:ERF) - oil and gas exploration - pays 0.18 a month while trading at 25.90. Good foundation but not a bunch of upside; the yield makes this one work.

Artis Real Estate (TSE:AX.UN) - commercial real estate - pays 0.09 a month and trades at 14.11. Decent growth but again, the yield carries it.

Student Transportation (TSE.STB) - yellow school buses - pays 0.046ish a month and trades at 6.57. steady growth and a good yield.

NAL Energy (TSE:NAE) - oil and gas exploration - pays 0.07 a month and is trading at 7.90. The dividend cant be maintained at this level and has to come down. The stock price/performance reflects this... I dont like it but I'll take the dividends for now.

Parkland Fuel (TSE: PKI) - local refiner/gas station chain - pays 0.085 a month and trades at 12.86. good yield and is performing well over the last quarter.

Temple Real Estate (CVE:TR.UN) - commercial real estate - pays 0.04 a month and trades at 4.90. good yield but limited upside.

Liquor Stores (TSE.LIQ) - liquor stores - pays 0.09 a month and trades at 15.15. good yield and i understand the market.

Petrobakken (TSE.PBN) - oil and gas exploration - pays 0.08 a month and is trading at 13.02. They overpaid for some assets, got hammered by the market, and put together a solid quarter. The yield is lower than some but they're up 40% in the last month or so...

Mullen Group (TSE.MTL) - oil and gas services - pays 0.25 a quarter and tradex at 19.56. One of my weakest yields but sustainable if not exciting)

Americas Petrogas (CVE.BOE) - oil and gas exploration - no dividend but good growth potential. As Greg suggested earlier, i rode this one up 60%, sold the profits, and hope for another run.

With those I see a decent return on the dividends alone. My upside is probably limited on most and its always painful to watch some run up until exdividend date then drop like a rock the day after but it's about as reliable return as I could find.

James -

Nice dividend stream - but DUDE <spicoli style> you need some diversification!

However.... I also understand your trade and what YOU understand... and perhaps you even have an "insiders view" of the industry.

Greg and James ...

I'll PM you my investments, piddly as they are, as you've got a much better handle on managing this stuff than I do. I'm one of those that hands on to stocks much longer than I should and haven't looked at my 401K in almost 20 years. You mention investing in places you shop and I wonder if Summit and Ross Dress-for-Less are publicly traded ...

Add to this my broker just got popped for a DUI. Weaving, cops lit him up. Tried to run from the cops, blew through a red light, and wisely decided to stop before he got stopped. Didn't look as good on the TV mug shot as he did when we met and I transferred my investments over last spring.

Plan B ...

Mary P.

I've been lightly looking into more dividend stocks in the last 6 months or so. However, I now see these threads popping up on every single site I visit regularly...

Reminds me when everyone was day trading and then everyone was in real estate.

Most stocks I've looked at still seem to have some compelling fundamentals but when everyone and their brother is talking about a dividend investing strategy it has to make you wonder.

OMG! Yeah - that's not going to work out real well.... Drunk AND stupid....

I'll be happy to look at your holdings... It's fun and I enjoy it and always learn something from it.

JUST FYI -- Summit isn't publicly traded - but of course you knew that! I've toyed with buying Snap-on (SNA).... but I missed buying them BEFORE I started building the shed... LOL


XOXO

Hi Chad- The stock market has been a little rough the past 10 years or so. The S&P 500 is flat over the last year and last 10 years, with lots of volatility. Interest rates on govt bonds are so low right now, they are not keeping up with inflation. If you were to invest in 30 yr govt bonds to try and get some return (~3%), as soon as interest rates start to rise, your principle will drop (unless you hold them to maturity). Dividend stocks tend to be less volatile, typically drops less when the market falls and rises slower when the market rises, this is also referred to as beta. So, a lot of people are looking at dividend stocks that have a decent yield and less beta than the market.

Well -- the major difference is that these PAY YOU. They're not gambling that the price is suddenly going to double... or that you can trade them daily and get in and out... or borrow cheap money and sell something in a month.

The reason people are coming on board the dividend train is because the dividend percentage is a known calculated rate. When you compare this rate to other "interest bearing" investments - the rates are very compelling. Compared to Bonds - CD's - Money Market funds etc the return is huge... and the only reason they would be BAD is if the stocks go way up and the dividend as a % then would come down. That can happen - but it doesn't take away that long term steady march of dividends reinvested. Historically this is a great way to invest. It's not another get rich quick scheme that just popped up.

So let's put this into real life terms. I own 25,000 shares of Annaly Capital Management (NLY) @ an average cost of $16.88 - it's dividend this quarter is .57 per share. This stock went "ex dividend" on the 27th -- and I will get a cash payment of $14,250.... and I'll get that or similar in another 3 months - and so on -- so that dividend (provided the dividend stays at .57) will pay me $57,000 this year.

I don't care if dividends are the "hot money" or anything else - because that $57,000 per year is REAL MONEY and I get it. Even if the stock goes DOWN -- I still get that dividend - if the stock goes up - I still get that dividend and I'd also have capital growth... but what I L O V E is that check! :unibrow:

The reason I PREACH look at the historic chart -- is because the capital (stock price gains) have been going like this for YEARS.... if not - I don't buy 'em. I can only get a glimpse of the future by looking at the past. There is no guarantee that they will continue - or at what rate - or that they won't go down - but if they have a 25 year history of paying that dividend - I have to go with that. I don't really know what else I could do differently. I can't make any money on CD's... I could buy houses cheap and HOPE they are going up some time (my bet is that they will)... but that takes talent - and work - and involvement etc. I can do my stock and bond investing with my laptop... and so far... it's beating all the real estate I own... and I've been doing it for 30 years. Doesn't make me an expert. And remember -- this is Investing 102 -- not "let's pick the next Microsoft" (been there done that - LOL). We're talking COKE - JNJ -MCD - KFT - etc.....

BTW -- I think this is a FANTASTIC observation.

I have always said -- if the grocery clerk tells you about the latest great way to make money --- RUN --- RUN AWAY from that idea - whatever it is -- because by the time the clerk is in -- it's nanoseconds from complete collapse!

I do not feel this way about DIVIDEND investing. Because of the reasons I stated in my earlier post.

I really just wanted to say - this is EXACTLY the kind of info and thought processes that I love to see in this thread -- because you are spot on! EVERYONE is looking for YIELD... because the world is in a deflationary period and it's just harder and harder to figure out where to get a decent return on your funds. If there's no "growth" -- then the growth stocks (they don't pay dividends) suck - if there's too much growth - then the interest rates will go higher and money will move to "interest bearing" stuff and out of the stock market. But -- BIG BUTT -- If a dividend paying stock price goes DOWN -- then the dividend % actually RISES.... so the dividend paying stocks tend to stay in lock step with other interest rate bearing "investments". Their share price might go down - but that dividend is declared as a dollar (cents) amount not a percentage of the share price..... so as the share price declines the percentage of the dividend rises. When the share price declines - I tend to buy more shares. It brings my average cost down - and keeps the dividend return percentage near where I need it to be.

Think of this as a rental house versus your own home. The major difference between the two "investments" is that the rental guy is paying the mortgage on the rental house - and eventually you'll kick him out and sell the house...

A dividend stock is paying you every quarter. If you choose to reinvest the dividend (rather than take the cash payment like I do) - then when the share price is low - you'll buy MORE shares - if the share price is high - you'll buy LESS shares.... but regardless of that - you'll end up with MORE SHARES which will pay you more dividends which will buy more shares which will pay you more dividends...

So let's look at my Annaly (NLY) post above -- I get $57,000 per year -- I have 400K invested - in 10 years what do I have invested if I take the dividend and spend it. Dude -- In 10 years THEY have PAID ME - $570,000 and I still have 400K (if the share price just stays exactly where it is today) worth of stock (or in other words I still own the asset). Now - had I chosen to reinvest the dividend? OMG -- Every year I'd have gotten MORE than the 57,000 because that amount of money would have bought another 3,000 shares... so the following year (2012) would have paid me dividend income of ($7600 plus the 57,000 = 64,600) and that would have bought another 3800 shares.... so now I'd own 31,800 shares paying $72 GRAND per year and if I reinvested in the shares I'd by buying $72,000 worth of shares to add to my pile! So do you see why this works??

I cash mine and piss it away on cars and stuff.... don't be like me. Check the "REINVEST THE DIVIDEND" box!!

Greg is smooth at explaining these things. :thumbsup: Hopefully this explanation will help limit your concern regarding bubbles. The great thing about investing in stocks, is that the companies are public (owned by shareholders) and must report their financials information each qtr. When stocks start to get bubblicious, you can typically see this in their price to earnings (PE) ratio. Since 1900 the average PE ratio of the S&P 500 is ~15. The current PE ratio of the S&P 500 is around 13, which would suggest that the S&P 500 is not overpriced on a historical basis.

For educational purposes I'll compare 2 growth stocks that do not pay dividends to show you how to look for potential bubbles. First, let's calculate Apple's (AAPL) PE ratio. Apple's stock is currently trading around $403 per share. Wall street is estimating Apple's 2012 earnings at $34.77 per share (EPS). Divide the stock price by the EPS ($403/$34.77) and you get a forward looking PE ratio of 11.6. Which is lower than the S&P average. Now lets look at Amazon (AMZN), they are currently trading at $173 per share and wall street is expecting them to earn $2.01 per share in 2012. Their forward looking PE ratio is 86, which to me is an extremely high PE ratio. So getting back to the bubble comment, when looking at investments for Investing 102, look for stocks with a reasonable dividend yield, that has a history of paying and growing their dividend AND has reasonable PE ratio.

Hope this helps!
Rob

Yeah... I hear you buddy... I'm just not good at (a) change and (b) stuff I'm not hands on with every day.

I do have some gold and minerals (mining) in the portfolio but they are not dividend paying stocks and I bought them for tax purposed more than anything. I had some conventional golds in the mix but some of them funded the OLC build back in the day and the entry point seems a bit too tenuous at this point...

I also have a green tech stock (gasification tech) that is my "stock I love to hate" but never seem to do the right thing with. I first bought in about 5 years ago at $2 about 6 weeks later than I should. I grinned when it went to $3 but held on because I was drinking the kool-aid. When it dropped to $1 a tried to ignore it and when it hit bottom around $0.5 I (somewhat reluctantly) averaged myself to something that made sense. I then grinned last month when it to $0.8 but again... I held on... no... I don't know why why... Today it's back at .5 (dammit .475)... It's been a "good learning experience" but that's about it.

Oh -- If you read this thread - you'd think everything I ever touched turned to gold.... HA! Far from it.. the key is to have more winners than losers because we are ALL going to have plenty of losers. It's just part of the way the world turns.

Back about 15 years or so ago --- I used to do more "trading" - not day trading but just lots of "movement" in and out of stuff. Sort of always chasing the flavor of the month (or week). I had enough dough that I USUALLY could buy my way out of a bad investment - and by this I mean - I'd average down the position. So newbs -- please don't do this - but here's what I'm talking about.

Say you bought 300 shares @ 10 and then went down to 8 - so you'd buy 300 more @ 8 - this gives you 600 @ 9.... so "on paper" at least you're current cost is closer to where it's trading... then let's say she's holding at 9 - so you buy another 600 @ 9 -- now you have 1200 @ 9.00

So the "theory" here is that I'm now holding the shares that are closer to the current price -- Works great IF -- BIG IF -- they come back to $9.50 or so and you can then scale out..... BUT -- BIG BUTT IN THE ROOM -- They can also (more likely! LOL) continue to decline -- so you buy even more...

Short story of this kind of idiocy - I lost 93K in one name and only lost $1 per share! The "first loss" I was trying to buy my way out of was maybe $5 grand.... :wow: :faint: But this "method" had worked so well for me in the past that I just kept chasing it down!

And - it is too long ago to remember - but my guess is -- a half hour after I sold and booked the loss -- the little man on wall street hollered to his buddies "The Dumbass is out -- take her up"!!:rolleyes: It never fails.

So the minute you sell your .05 shares - the next week they'll announce an all cash buyout of $15 a share. :lol:

Greg,

How do you know when to sell. Say you bought a stock and it had a good history of paying a dividend and went up in price over the long term. But it does not do that and falls in price. Or quits paying the dividend. How do you know when to fold and walk away.

How about cashing out some the stock, so if there is a 100% price increase over a year. What now?

Thanks

Good questions!

There's some old sayings on Wall street - that can, and do, make "some" sense... as in "nobody ever went broke taking a profit".... True enough -- but -- Always seems to be a big butt right?

So your question is multi faceted and really complicated - but also somewhat easy --

If a company reduces or suspends paying a dividend - YOU SELL IT! FAST! That is the kiss of death because that means they don't have the profits to continue to share with YOU the guy that owns the company (via stock ownership).

When a stock is going down - you need to understand WHY it's going down - a sales slip? A shrinking profit margin? Accounting fraud? There's so many things that can cause a stock to slip -- or is it the "SECTOR" the stock is in and all in that sector are going down? Or is it just that we're in a bear market and EVERYTHING is down? That's why that is a hard question to answer because there are so many reasons. Having said all of that --- there's a lot of money to be made buying the "best of breed" stocks in a bear market.... and that's when I personally do my best "shopping" -- because it's like every stock in the universe just went "on sale". I love to buy when stuff is on sale!

Now -- the other question was "what if a stock went up 100%" --- Buddy! Your mouth to gods ear! 'Cause that is what everyone is looking for! :D But -- there's that butt again - you always need to "rebalance" the portfolio... and if the stock has gained so much that you're out of balance - you want to sell some of it and buy something else (diversify!).... Yeah -- it can keep going -- and you'll kick yourself for not having held every dime when it doubles again.... BUT that's where the old saying "pigs get fat and hogs get slaughtered" comes from. Better to be a profitable pig. Think about it this way as well - if you had a double - and sell half - the balance is "house money". That is a very nice place to be!

NOW -- all of this "depends" -- depends on how much money you have - how old you are - how familiar you are with why the company is going gangbusters etc. I've had stocks that have been at .56 - gone to $28 - and gone back (faster) to $1.70 - and then gone back to $35.... Those are RARER than a ZL1 -- and not for your average Investor 102 class. So taking some of the profit off the table is the "prudent" course... even if you live to regret it. Scroll back and read my post about the 20 million dollar yacht (boat) I owned. But I've never looked back and have been happy taking the gains and using them to live another day.

Wanna look at a real life - recent - scenario? Look at the chart of NETFLIX (NFLX), there's a stomach churner! And that all came about because the CEO shot his mouth off... So to speak. One day you've got a 3Xr and in a manor of a few days and weeks - you're looking at a loss! But if you'd bought at 100 and sold some at 200 - and sold some more at 300 - you'd be "okay" holding here at 65 (I'd have bailed completely).

You are telling me. I've invested money into the stock market straight out of my paycheck every single month since 1999. I know just how bad the market has sucked the last decade+ Good news is that I learned I can hold things for the long haul even when things look terrible (2008/2009).

Correct me if I'm wrong but beta within the context of the stock market isn't a measure of volatility or risk by itself. I believe beta is the measure of the volatility of an investment compared to the overall stock market. Beta of 1.0 moves lock step with the market. Beta of 0.1 will pretty much do its own thing and not impacted by the market or events that tend to impact the market.

I bolded the part that scares me the most about plowing money into dividend payers right now. The reason bonds have done amazing the last 25+ years and managed to kill stock market the past 10+ years is interest rates have been steadily declining since 1984. It's a damn good time to own interest rate bearing investments during a decreasing interest rate environment. It's not so good during an increasing rate environment.

If rates spike in 5 years, dividend stocks yielding ~3% are going to get killed if they don't have growth potential to keep them buoyed. Why buy a dividend stock that consistently pays our ~3% dividend when you can buy a significantly lower risk item (traditionally a bond) or even risk free item (CD) paying much higher? That's right you won't. So the dividend payout has to increase or the stock price has to fall to keep yields attractive.

Interest rates can't go down and the Fed has basically promised to keep rates flat for 2 years but then what?

I'm an investor and not a market timer so I keep putting a big chunk into the market month after month. And like I said there are some good dividend payers that I want to buy but between the tax inefficiency** of dividend stocks and the fact a total market index fund like VTSAX has been yielding 2%+ I don't know if the extra 1%-2% average yield is worth losing the growth potential of something like VTSAX in light of what I believe interest rates will do... in the long run

** For me purchasing individual stocks in a 401K is not an option, only my IRA. $5k a year isn't going to make a whole lot of difference so that leaves after tax investing. With dividend gains returning to ordinary income tax rates next year dividend investing is tax inefficient.

For others reading along. If buy two investments. Investment A for $100 and investment B for $100. Investment A stock prices grows 5% a year and pays a dividend of 5% a year that you reinvest for 10% total returns per year. Investment B doesn't pay a dividend but grows 10% a year so that both investment's A and B total return is equal. You pay zero taxes on investment B until you sell and currently that would be taxed at a lower rate than ordinary income taxes. Investment A would trigger taxes every year and at the end when you sold (if you sold) your return after taxes would be less.

Chad -- Nobody here is going to debate WHAT YOU THINK and WHAT IS RIGHT FOR YOU.... I've said this time and again - and will repeat. You - the individual - must sleep at night with the decisions you made for your investments.... regardless of what that is.

Having said that... you left out the fact that IF and WHEN interest rates rise - your bonds are going to be just as hammered (capital)... and that interest rates tend to rise slowly and are WELL TELEGRAPHED by the fed. There is plenty of time to bail from whatever strategy you've employed.

Now -- if and when interest rates start to rise - which will also telegraph that things (economically) are getting better - which generally leads to a RISE in the stock market... so, much of the "loss" of the dividend % paid is made up with the corresponding increase in capital gains. You must take the two together - capital increase and dividend payouts in order to calculate your return. The market will (should) rise in a interest rate rising environment "at first"... because it signals strength in the economy - then inflation will set in - and yields will fall - and so to, will stocks.

Back in the mid 70's and early 80's -- you didn't need to own stocks because a bank CD would pay you 12%! But those are market cycles and 99% of the folks can't "time" them. And we're talking about steady eddy investing here not market timing. Even though I understand what you're talking about.

BONDS - Of which I have a HUGE position in - are TERRIBLE investments unless you're already retired or are very near retirement and you just can't bear to have any capital loss (you'd hold to maturity). They have no capital growth but are bought for SAFETY and for the tax free (albeit below "market" rates) dividends. Unless you're a trader - and that isn't what INVESTING 102 is about.

Personally -- I wish we had RAGING INFLATION.... I owe nothing - and would be happy as a pig in poo to be getting 10% interest in a money market fund/CD.... but the folks old enough to remember those days will tell you that they weren't good times at all.

That sounds GREAT --- tell me which stocks you're going to guarantee me are going to go up. Because that is the MAJOR difference in dividend investing and investing in pure capital growth. Most people can not pick which stocks are going to rise. And with that comes RISK... Dividend investing -- in the kind of names we've been discussing - have a history - AND pay that dividend. What that can do for you is cushions and comforts during the downturns and creates income for reinvestment.

TAXES are a whole different discussion... and unless someone is a "seer" you can't predict what our infamous bozos in Congress will or won't do.... TAXES and their scenarios need to be discussed with a CPA on an individual basis. What my tax situation is, will be far different than someone else's.

I wasn't advocating bonds either. To me, my post still clearly states that its not good to own interest rate bearing securities (which includes bonds) in a rising rate market.

Bonds and Dividend stocks scare me a bit because I expect both of them to get hammered if interest rates rise rapidly.

I wished I owned a hell of a lot more bonds the last decade than I did (mostly 100% equity invested). As of now I have less than 10% of my money in bonds and have trouble significantly increasing a bonds position given where rates are at.

I was generally comparing dividend stocks to a total stock market index fund like VTSAX which has been yielding 2% and which I think has a much better chance of actually achieving the following statement you made:

Fair enough on debating what is right for each individual. I've seen this thread building for a while and thought it worth putting out some additional viewpoints on dividend investing that I haven't seen discussed. Namely the tax efficiency of it and its increased sensitivity to interest rates. At the end of the day I'm still very interested in getting some more dividend specific stocks and had been researching it quite a bit before this thread ever popped up but is why I've been following this thread. However, it is good to have different perspectives (the point of this thread) and you are extremely bullish on dividends :)